Credit competitors MasterCard (MA, news, msgs) and Visa (V, news, msgs)are still slugging away at each other.
But in the wake of the recession, sheepish small businesses and cautious consumers have led to a near stalemate as they deal with other challenges.
Both stocks have been beaten down as a result. But one is clearly the better buy for a rebound.
The entire credit card industry has taken a beating during the past two years. Spending fell, consumers paid down debt (or went into default) instead of borrowing, profits disappeared, and new credit rules limited the industry's ability to crank up fees and change the terms of card agreements.
- The Commerce Department has reported a renewed consumer-spending slump during the past few months.
- The Conference Board's Consumer Confidence Index has headed south for the summer.
- The Associated Press' economic survey is forecasting only 3% growth through 2011.
- Consumers are saving at rates unseen since 1998.
All this has been especially painful for MasterCard and Visa, which are on the receiving end of a tough combination from the Credit Card Accountability, Responsibility and Disclosure Act and the debit card elements of financial regulation that go into effect next year.
Beaten down together
The Credit CARD Act ordered the companies to freeze interest rates on new accounts until a year after they're opened, while new regulation will cap debit card "swipe fees" charged to merchants. The latter could knock the wind out of business transactions, whose estimated value is just under $10 billion."Visa and MasterCard don't have a great deal of influence over whether or how their member banks market business cards, but earn enhanced transaction revenue from the use of such products as they involve higher merchant interchange," says Ben Woolsey, an analyst with CreditCards.com.
The government's manhandling of Visa, MasterCard and other credit providers worked out great for consumers and businesses but staggered credit card companies' stock prices. This year, as of the beginning of August, MasterCard shares had fallen 21% and Visa shares 17%, while the S&P 500 Index ($INX) had declined 2%.
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Visa
MasterCard
The two companies are using nearly identical marketing strategies to expand their networks (MasterCard through Cirrus, Maestro and PayPass; Visa through VisaNet, Plus, Interlink and PayWave) and taking similar steps to innovate with things such as text-message transaction updates and RFID chips in cards. So it's not surprising that instead of one beating up the other, they're hitting the canvas together like Rocky Balboa and Apollo Creed at the climax of "Rocky II."
Continued: Which is the better bet?
